Innovation in China

The following sections are included:

• Dedication
• About the Author
• Acknowledgments
• Contents
• Acronyms
• Introduction

China, throughout most of the last two and half thousand years, has been an innovative civilization. The official Confucian rules of the game encouraged innovation relative to other contemporary cultures. Imperial governments were staffed by scholar-bureaucrats, recruited through examinations and keen to acquire technical knowledge. Medieval China rose to world innovation leadership. However, in early modern times, China fell behind and, in the 19^th century, the Chinese Empire crumbled in the face of dynastic decline, foreign invasion, and the modern failure of the Confucian tradition.

Innovation has always been central to Chinese development. China’s greatest, modern, political innovation occurred in 1949 when the CPC won the civil war and came to power. Since then the CPC has proved to be the world’s most successful communist party. This chapter summarizes how the CPC came to power and how it stimulates innovation. I describe the control exercised over the Chinese state by the CPC and how the one-party-directed state leads a market-based economy. This “socialism with Chinese characteristics” is the environment for business innovation in China.

IP laws are “rules of the game” enacted by countries to reward innovation. In a single generation, China has evolved from a Soviet-style planned regime, averse to private property, including IP, into a country with an IP regime, headed by the China National Intellectual Property Administration (CNIPA), compatible with international norms. Today, Chinese produce, take pride in, register, violate, and litigate more IP than citizens of any other country in the world…

This chapter introduces the largest single infrastructure project in world history, China’s 36,000 km-and-counting HSR network, an investment costing over US$750 billion, 20 times China’s Three Gorges Dam and 50% greater than the cost of the US interstate highway system (adjusted for inflation) (Figure 4.1)…

This chapter presents the first teaching case of this book, Incubation and the Hong Kong Science and Technology Parks Corporation. The case describes Albert Wong, CEO of the Hong Kong Science and Technology Parks Corporation (HKSTP), assessing the marketing strategy for HKSTP’s program to incubate high technology, start-up companies in Hong Kong. HKSTP provides services to incubatees — the start-ups admitted to the program — to increase their chances of success. HKSTP itself competes with other incubators to serve high quality incubatees. Marketing should engage its target. That’s the issue to be discussed…

“Cisco and Cloud-based Education in China” is a marketing case about entry of a large non-Chinese MNC into the China market. The protagonist in the case is Aglaia Kong, vice president and chief technology officer at Cisco Greater China. She is considering how Cisco can develop and market equipment for the Chinese education information technology revolution.

This chapter discusses how Daoism and Confucianism affect management of innovation by two modern Chinese entrepreneurs.

Traditional Chinese culture extols dao – the way, the method, the philosophy by which one should live. Each person can have his or her own dao. The Chinese character for dao 道 is made up of two parts, one representing the head and the other the foot. Dao involves thinking and acting. Also Romanized in English as "tao" the character is used for the religion of Daoism (Taoism). Daoism was first described by the philosopher Laozi in the early Eastern Zhou Dynasty, coincident with the 6^th century BC Axial Age when the innovation of self-conscious religion sprang up simultaneously in several different parts of the Eurasian Continent (see Chapter 1). Yet, like all "new" religions at that time, Daoism had far older roots. Daoism drew on traditions of divination and nature worship predating Laozi by over a thousand years. And Daoism continues as an active religion today…

This chapter presents a case about a practicing Buddhist, Cao Dewang, and the company he started, Fuyao Glass, the largest and most profitable auto glass producer in the world. Cao like Zhang Ruimin and Ren Zhengfei discussed in Chapter 7, is from the first generation of private entrepreneurs who started their own companies in the early years of the reform and opening up of China. Cao, like Zhang and Ren, was born before liberation. Cao’s father, a rich Shanghai-based businessmen, relocated the family back to their ancestral home in Fuqing County, Fujian Province immediately following liberation. There Cao’s father’s business foundered and the family was reduced to abject poverty…

Innovation flourishes in youth. Optimistic, vigorous and enthusiastic, quick in thought and action, unburdened by history, the young creates the new…

SenseTime, the company in this chapter’s case, is one of the world’s leading start-ups in AI, a science based on artificial neural networks (ANN).

The neuron is stupid. If its input stimulus is less than a threshold level the neuron does nothing. If its stimulus is more than the threshold, the neuron fires an output. But neurons can be interlinked and trained. A million neurons — linked to sensory stimuli, interconnected, with weighted inputs and firing into motor neurons that control muscles and glands — guide a well-functioning cockroach. A hundred billion neurons form the self-conscious mind of a human. Put tens of thousands of humans together for thousands of years and you get civilization. Increase their numbers to billions and electronically network their activities and you get modern society. All from stupid neurons…

Financing is critical for a company taking innovation to market. The money can be generated from operations or asset sales, personal funds, friends and family, angel capital, supplier and buyer credit, commercial bank loans, and public equity and debt. VC, however, is a unique institutional source of equity risk capital for new ventures. The ventures that turn to VC need more funds than they themselves, family or friends can provide. The ventures are not mature enough and their project structures are not safe enough to attract bank debt. Banks are traditionally interested in lending against collateral. They want near-certainty of repayment on time and in full. The ventures using VC are too young to approach public markets. The ventures may be able to tap angel funds, but angels are hard to find and typically do not have much money to invest. The figure on the next page shows venture capital relative to alternative sources of finance in two-dimensional investment stage-risk space.

The final chapter in this casebook introduces how China Merchants Bank (CMB) stimulates innovation in a controversial technology, blockchain.

The following sections are included:

• Concluding Words
• Index